Subpoena Seeks Senator's Records on Funds He Directed to Community Groups

Published: February 12, 2010

Federal prosecutors investigating a nonprofit group linked to State Senator Malcolm A. Smith and Congressman Gregory W. Meeks have subpoenaed records from Mr. Smith's Senate office that detail all monies he has directed to community groups for a decade, a person with knowledge of the subpoena said Thursday.

The subpoena, issued by federal prosecutors in Manhattan and served on Mr. Smith's office during the first week of February, was broadly written to seek information on all of Mr. Smith's so-called member items -- grants to organizations in his Queens district -- and any appropriations tied to him since at least 2000, according to the person with knowledge of the subpoena.

But investigators made clear, the person said, that they were seeking the records because of their interest in New Direction, a group set up in 2000 to encourage development in southeast Queens. Mr. Smith, through his spokesman, Austin Shafran, declined to comment.

Since 2000, New Direction requested a total of $111,500 from Mr. Smith's office, but only $56,000 was provided to the group in four member items, $17,000 in 2001 and three disbursements in 2006 of $8,000, $5,000 and $26,500. A further member item grant for $10,000 was awarded in April 2006, but New Directions never used it.

Several of the group's board members have been tied to Mr. Smith, including Joan Flowers, a Queens political operative who said she served as its lawyer until 2005. She was also Gov. David A. Paterson's campaign treasurer when he was lieutenant governor, according to records.

Ms. Flowers, whose office was listed as the New Direction group's address on its tax returns from 2002 until its most recent, for 2008, also served as Mr. Meeks' campaign treasurer and was a campaign consultant to Mr. Paterson and Mr. Smith, records show.

In a brief telephone interview on Thursday evening, Ms. Flowers said she helped to incorporate the group in about 2000, but ended her dealings with New Direction some years ago for reasons she declined to discuss. She said she could not immediately recall when she resigned. She said the group no longer shared its address with her office's.

''I didn't want to be their attorney any longer,'' she said. ''I have a right to choose what clients I represent.''

The New Direction tax returns for 2004 and 2005 indicated that the group's financial books were in her care. She said she had not been subpoenaed and knew nothing about why the group would be under investigation

Mr. Smith and his political action committee, Build New York, have also paid Ms. Flowers about $46,000 since 2004. Records say the payments were for campaign consulting and various professional services, but she said she was paid primarily as Mr. Paterson's campaign treasurer and as the treasurer for Mr. Smith's committee. She said she did not know why the group still used her law firm's address, or where it had moved. ''I just don't have the records in front of me,'' she said.

New Direction appears to have at least indirect ties to Aqueduct Entertainment Group, a company that won a lucrative deal last month to operate video lottery terminals at the Aqueduct racetrack in Queens. And earlier this week, federal prosecutors served a subpoena on the state's Division of Lottery, which helped evaluate the bidders for the Aqueduct deal.

How seriously the investigation will look into the awarding of the Aqueduct contract is unclear. Peter Kiernan, counsel to Governor Paterson, said in a statement on Wednesday that lottery officials were told the subpoena was in regard to the inquiry into New Direction. But officials briefed on the matter said the subpoena sought documents related to Aqueduct Entertainment.

The selection process that led to the award of the concession to Aqueduct Entertainment Group was conducted jointly by Mr. Paterson and State Senate and Assembly leaders.

The Assembly speaker, Sheldon Silver, who has expressed reservations about the selection of the Aqueduct Entertainment Group since the announcement this month, on Thursday sent a letter to the state inspector general, Joseph Fisch, requesting that he review the matter.

A Paterson spokesman responded by saying in a statement that Mr. Silver was one of the three architects of the process.

The spokesman said Governor Paterson welcomed Mr. Silver's request and had pledged to publicly release the documents underlying the process, including all submissions, bids and solicitations, and would comply fully with any inquiry. ''There is nothing to hide, and all of these documents were shared with the legislative leaders during the selection process,'' the statement said.

A spokesman for Aqueduct Entertainment issued a statement in the name of one of the group's partners, Jeffrey Levine: ''We are confident that any review will find A.E.G. was selected because our bid represented the best value for New York's taxpayers and the best plan for the residents of Queens.''